Published: Tuesday, 29 Jan 2013 | 12:07 PM ET
By: Diana Olick
CNBC Real Estate Reporter
The housing market is supposedly roaring back. Home prices
are seeing their biggest annual gains since 2006.
Renters must be rushing back to buy, right?
Not exactly.
In fact, even as housing and the greater economy improve, a
shift in demographic trends will likely favor the rental apartment market for
the foreseeable future. It is all about women.
“I rent in an apartment building because it gives me a
certain amount of freedom: I’m not positive that I want to stay in D.C. long
term so I could leave at year’s end if I wanted to,” says 25-year-old Caitlin
Huey-Burns, a working journalist. “My building has nice, built-in
amenities, and it’s in the location I want, but where I know I wouldn’t be able
to afford to buy.”
Most of Huey-Burns’ single, female friends, some in their
thirties, who live in major cities, also rent in apartment buildings. Just one
owns, and she lives in
“What drives demand for single family homes is, ‘Oh
honey, I’m pregnant,” says Buck Horne, a housing analyst at Raymond James.
But those words are being uttered less and less. Horne
claims the shift in female education, marriage and fertility rates will drive
rental apartment demand going forward. He points to a growing educational
imbalance, that is, 3.1 million more women enrolled in college than men and 4
million more college-educated women in the workforce than men.
“That creates a structural imbalance in the number of
suitable partners. Women leave college with good income prospects and are not
finding suitable husbands and fathers,” says Horne.
Consequently, the millennial generation is delaying marriage
and motherhood, and birth and fertility rates are dropping. The female
fertility rate is at its lowest level in recorded
Centers for Disease Control/Raymond James research. 41 percent of children are
born out of wedlock. Horne’s research finds single mothers prefer living closer
in to cities and staying in full amenity apartment rentals. This all points to
more structural, long-term demand for rental housing.
But, again, shouldn’t that rebound in home prices and
growing confidence in housing still push more renters to buy, despite the
female argument? Investors certainly think so. While stocks of the nation’s
homebuilders are up over 60 percent from a year ago, multi-family REIT’s
actually under-performed and inversely correlated to home builders. Investors
were concerned about the single-family home recovery stealing renters. But
should they be?
No, according to a recent Raymond James report:
Renter household formation remains at the strongest level in
decades. Roughly 1.32 million new renter households were formed in the past
year (including owner conversions), while the number of owner-occupied
households declined by 175,000. Resident turnover and move-outs to
homeownership remain near historic lows for most operators. Incoming leasing
traffic is more than offsetting move-outs while paying higher rates.
The home ownership rate declined yet again in the fourth
quarter of 2012, according to a new report from the U.S. Census today. It now
stands at 65.4 percent, down from 66 percent a year ago and from a high of 69.2
percent in 2004. If you include the 5.3 million borrowers who are delinquent on
their mortgages or in the foreclosure process, per Lender Processing Services,
the real home ownership rate is even lower.
“The fact that the housing recovery is being driven
principally by investor demand means that the slight decline in the
homeownership rate in the fourth quarter is unlikely to be the last,”
notes Paul Diggle of Capital Economics.
There is also a tremendous amount of pent-up demand for the
rental market, as nearly 23 million young adults, male and female, under age 35
(31 percent of the cohort) are currently classified as ‘living at home’ with
parents, according to Raymond James’ analysis. As job growth improves, they
will move to rental apartments; the homeownership rate for this group is only
34 percent.
Investors are also concerned about a 49 percent jump in
multi-family construction permits from a year ago, but those permits are still
running well below normal levels, and every year about 150,000 units are
removed from housing stock for various reasons, like age and damage.
Suffice it to say that the apartment sector and the
multi-family REITs will likely see a surprise to the upside in 2013. Rents will
still rise, despite housing affordability and growth in the single family market.
